What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-12-08 compared with 2023-09-14 · 96 added, 90 removed, 140 unchanged (57% of the section changed)

7 unchanged sentences

Percentages set forth below in this MD&A have been rounded to the nearest percentage point. 

Supply Chain Constraints and Inflationary Impacts

Due to the current inflationary environment, raw material supply shortages and transportation delays, the Company may experience delays and increased prices for raw materials used in the production processes.

To mitigate these impacts, the Company has implemented several strategies, including purchasing from alternative suppliers and planning for material purchases further in advance to ensure the Company has materials when needed.

The Company has also updated its pricing to customers to offset the impacts of the raw material price increases.

These impacts are expected to continue throughout 2023 .

RESULTS OF OPERATIONS

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($ in thousands)

Three Months Ended July 31,

Six Months Ended July 31,

Three Months Ended October 31,

Nine Months Ended October 31,

Change favorable (unfavorable)

7 unchanged sentences

Interest expense

Other income (expense)

Other expense

Income before income taxes

1 unchanged sentence

Net income (loss)

Net income attributable to noncontrolling interests

Net income attributable to non-controlling interest

Net income (loss) attributable to common stock

Three months ended July 31, 2023

Three months ended July 31, 2022

Three months ended October 31, 2023

Three months ended October 31, 2022

Net sales were $

1 unchanged sentence

37.9 million in the

three months ended July 31, 2023 and 2022, respectively. 

three months ended October 31, 2023 and 2022, respectively. 

 million, or 21%

, was  a result of lower sales volumes in North America.

, was  a result of increased sales volumes in Saudi Arabia. 

Gross profit:

Gross profit was $9.5 million, or 27% of net sales, and $9.9 million, or 28% of net sales, in the three months ended July 31, 2023 and 2022, respectively.

The decrease of $0.4 million was primarily driven by lower sales volumes.

Gross profit was $13.2 million, or 29% of net sales, and $11.1 million, or 29% of net sales, in the three months ended October 31, 2023 and 2022, respectively.

The increase of $2.1 million was primarily driven by increased sales volumes in Saudi Arabia.

General and administrative expenses:

General and administrative expenses were $5.3 million and $5.2 million in the three months ended July 31, 2023 and 2022, respectively.

General and administrative expenses were $5.7 million and $5.3 million in the three months ended October 31, 2023 and 2022, respectively.

The increase of $0.4 million, or 8%, was due to higher payroll costs in the quarter.  

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1.5 million and $

1.3 in the 

three months ended July 31, 2023 and 2022, respectively. 

1.3 million in the 

three months ended October 31, 2023 and 2022, respectively. 

increase of $

0.2 million was mainly the result of higher payroll costs in the quarter.  

0.2 million was consistent with prior quarter results.  

Interest expense:

Net interest expense remained consistent and was $0.6 million and $0.5 million in the three months ended July 31, 2023 and 2022, respectively.  

Other income (expense):

Other income was consistent and less than $0.1 million for  the three months ended July 31, 2023 and 2022 , respectively. 

Net interest expense remained consistent and was $0.6 million and $0.7 million in the three months ended October 31, 2023 and 2022, respectively.  

Other expense:

Other expense was $(0.5) million and $(0.9) million for  the three months ended October 31, 2023 and 2022 , respectively.

The components of other expense were both related to the pension plan termination. 

Income tax expense:

The Company's worldwide effective tax rates ("ETR") were 45.2%  and 32.2%  in the three months ended July 31, 2023 and 2022 , respectively. The change in the ETR is due primarily to the inability to recognize tax benefits on losses in the United States due to a full valuation allowance and changes in the mix of income and loss in various jurisdictions.

The Company's worldwide effective tax rates ("ETR") were 31%  and 40%  in the three months ended October 31, 2023 and 2022 , respectively. The change in the ETR is due primarily to the inability to recognize tax benefits due to losses incurred in the United States resulting in a full valuation allowance and due to changes in the mix of income and loss in various jurisdictions.

For further information, see Note 5 - Income taxes, in the Notes to Consolidated Financial Statements.

1 unchanged sentence

Net income attributable to common stock was $1.9 

million and $ 1.9 million in the three months ended July 31, 2023 and 2022 , respectively. The 

decrease of $ 0.9  million was mainly due to lower sales activity in the quarter. 

Six months ended July 31, 2023 vs.

Six months ended July 31, 2022

million and $ 1.7 million in the three months ended October 31, 2023 and 2022 , respectively. The 

increase of $0.2  million was mainly due to increased sales activity in the quarter. 

Nine months ended October 31, 2023 vs.

Nine months ended October 31, 2022

Net sales were $

1 unchanged sentence

 million in the 

six months ended July 31, 2023

nine months ended October 31, 2023

, respectively. 

 million, or

 was a result of lower sales volumes in North America.

 was a result of increased sales volumes in Saudi Arabia.

Gross profit:

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27%  of net sales, and $ 28.1  million, or 

26%  of net sales, in the six months ended July 31, 2023 and 2022 , respectively.

decrease  of $ 0.7  million was driven by lower sales volumes.

26%  of net sales, in the nine months ended October 31, 2023 and 2022 , respectively.

increase  of $ 1.3  million was driven by increased sales volumes in Saudi Arabia.

General and administrative expenses:

General and administrative expenses were $ 16.4  million and $ 16.2  million in the 

six months ended July 31, 2023 and 2022 , respectively.

decrease  of $ 0.2  million, or 2%  was due to lower payroll costs.  

nine months ended October 31, 2023 and 2022 , respectively.

increase  of $ 0.2  million was consistent with prior year results.

Selling expenses:

Selling expenses were $ 2.7  million and $ 2.6  million in the six months ended July 31, 2023 and 

Selling expenses were $ 4.2  million and $ 3.9  million in the nine months ended October 31, 2023 and 

2022 , respectively.

increase of $ 0.1  million was due to higher payroll costs.  

increase of $ 0.3  million was driven by higher payroll expenses. 

Interest expense:

Net interest expense remained consistent and was $ 1.1  million and $ 0.9  million in the six months ended July 31, 2023 and 2022 , respectively. 

increase of $ 0.2  million was attributable to rate increases during the year.

Other income (expense):

Other income (expense) was consistent and less than $0.2 million for the six months ended July 31, 2023 and 2022 , respectively. 

Net interest expense remained consistent and was $ 1.8  million and $ 1.6  million in the nine months ended October 31, 2023 and 2022 , respectively. 

increase of $ 0.2  million was attributable to increases in interest rates and borrowing activity during the year.

Other expense:

Other expense was $(0.4) million and $(1.0) million for the nine months ended October 31, 2023 and 2022 , respectively.

The components of other expense were both related to the pension plan termination.  

Income tax expense:

The Company's worldwide effective tax rates ("ETR") were 45.2%  and 32.2%  in the six months ended July 31, 2023 and 2022 , respectively. The change in the ETR is due primarily to the inability to recognize tax benefits on losses in the United States due to a full valuation allowance and changes in the mix of income and loss in various jurisdictions.

The Company's worldwide effective tax rates ("ETR") were 31%  and 40%  in the nine months ended October 31, 2023 and 2022 , respectively. The change in the ETR is due primarily to the inability to recognize tax benefits due to losses incurred in the United States resulting in a full valuation allowance and due to changes in the mix of income and loss in various jurisdictions.

For further information, see Note 5 - Income taxes, in the Notes to Consolidated Financial Statements.

Net income (loss) attributable to common stock:

Net income (loss) attributable to common stock was $ (0.1)  million and $ 1.0  million in the six months ended July 31, 2023 and 2022 , respectively. 

decrease  of $ 1.1  million was mainly due to a reduction in gross profit as a result of lower sales volumes.

Net income attributable to common stock:

Net income (loss) attributable to common stock was $ 1.8  million and $ 2.7  million in the nine months ended October 31, 2023 and 2022 , respectively. 

decrease  of $ 0.9  million was mainly due to increased selling, general and administrative expenses as compared to the same period in 2022. 

Liquidity and capital resources

Cash and cash equivalents as of July 31, 2023 were $6.1 million compared to $5.8 million on January 31, 2023.

On July 31, 2023, $0.3 million was held in the United States, and $5.8 million was held at the Company's foreign subsidiaries. The Company's working capital was $35.8 million on July 31, 2023 compared to $41.9 million on January 31, 2023.

Cash and cash equivalents as of October 31, 2023 were $6.0 million compared to $5.8 million on January 31, 2023.

On October 31, 2023, $0.1 million was held in the United States, and $5.9 million was held at the Company's foreign subsidiaries. The Company's working capital was $37.1 million on October 31, 2023 compared to $41.9 million on January 31, 2023.

Of the working capital components, accounts receivable increased by $5.1 million and cash and cash equivalents increased by $0.2 million as the result of the movements discussed below.

As of July 31, 2023, the Company ha d $5.3  million of borrowing capacity under the Renewed Senior Credit Facility in North America and $13.7  million of borrowing capacity under its foreign revolving credit agreements.

The Company had $7.2  million borrowed under the Renewed Senior Credit Facility and $8.1  million borro wed under its foreign revolving credit agreements at July 31, 2023.

Net cash provided by operating activities was $ 3.5  million and net cash used in operating activities was $ 11.2  million in the six months ended July 31, 2023 and 2022 , respectively. The 

As of October 31, 2023, the Company ha d $4.6  million of borrowing capacity under the Renewed Senior Credit Facility in North America and $13.7  million of borrowing capacity under its foreign revolving credit agreements.

The Company had $6.7  million borrowed under the Renewed Senior Credit Facility and $9.5  million borro wed under its foreign revolving credit agreements at October 31, 2023.

Net cash provided by operating activities was $ 7.6  million and net cash used in operating activities was $ 5.1  million in the nine months ended October 31, 2023 and 2022 , respectively. The 

increase of $ 12.7  million was due primarily attributable to decreases in unbilled accounts receivable, inventory and costs and estimated earnings in excess of billings on uncompleted contracts, partially offset by changes to accounts receivable and accounts payable. 

Net cash used in investing activities  in the 

six months ended July 31, 2023 and 2022 was $ 6.8  million and $ 2.0 million, respectively.

Net cash provided by (used in) operating activities  in the 

nine months ended October 31, 2023 and 2022 was $ 8.2  million and $ 3.1 million, respectively.

increase of $ 5.1 million was due primarily to investments in the Middle East and Canada.

Net cash provided by financing activities  in the 

six months ended July 31, 2023 and 2022 was $ 3.7  million and $ 10.7 million, respectively.

nine months ended October 31, 2023 and 2022 was $ 1.2  million and $ 7.6 million, respectively.

The main source of cash from financing activities during the 

six months ended July 31, 2023  was net proceeds from borrowings of approximately $4.8 million under the Company's credit facilities, as compared to the six months ended July 31, 2022 , when net proceeds were approximately $11.3 million.

Debt totaled $ 29.2 million and $ 24.3  million as of July 31, 2023 and January 31, 2023 , respectively.

nine months ended October 31, 2023  was net proceeds from borrowings of approximately $4.8 million under the Company's credit facilities, as compared to the nine months ended October 31, 2022 , when net proceeds were approximately $11.3 million.

Debt totaled $ 27.2 million and $ 24.3  million as of October 31, 2023 and January 31, 2023 , respectively.

See Note 9 - Debt, in the Notes to Consolidated Financial Statements for further discussion relating to this topic.

25 unchanged sentences

The Renewed Senior Credit Facility also contains financial covenants requiring the North American Loan Parties to achieve a ratio of its EBITDA (as defined in the Renewed Senior Credit Facility) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Renewed Senior Credit Facility of not less than 1.10 to 1.00 for any five consecutive days in which the undrawn availability is less than $3.0 million or any day in which the undrawn availability is less than $2.0 million.

As of July 31, 2023 , the calculated ratio was less than 1.10 to 1.00.

As of October 31, 2023 , the calculated ratio was less than 1.10 to 1.00.

In order to cure any future breach of these covenants by the North American Loan Parties, the Company may repatriate cash from any of its foreign subsidiaries that are otherwise not a party to the Renewed Senior Credit Facility in an amount which, when added to the amount of the North American Loan Parties' EBITDA, would result in compliance on a pro forma basis.

The Company was in compliance with respect to these covenants as of 

July 31, 2023 .

October 31, 2023 .

The Renewed Senior Credit Facility contains customary events of default.

2 unchanged sentences

Loans outstanding under the Renewed Senior Credit Facility will bear interest at a rate of 2.00% per annum in excess of the otherwise applicable rate (i) while a bankruptcy event of default exists or (ii) upon the lender's request, during the continuance of any other event of default.

July 31, 2023, the Company had borrowed an aggregate of

October 31, 2023, the Company had borrowed an aggregate of

 million at a rate of 10.0%

6 unchanged sentences

The Company has a revolving line for 8.0 million U.A.E.

Dirhams (approximately $2.2 million at July 31, 2023) from a bank in the U.A.E.

As of July 31, 2023 the facility has an interest rate of approximately 8.4% and is set to expire in May 2024.

Dirhams (approximately $2.2 million at October 31, 2023) from a bank in the U.A.E.

As of October 31, 2023 the facility has an interest rate of approximately 9.0% and is set to expire in May 2024. The Company had borrowed an aggregate of $0.1 million and $0.6 million as of October 31, 2023 and January 31, 2023, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets. 

The Company has a revolving line for 19.5 million U.A.E.

Dirhams (approximately $4.8 million at July 31, 2023) from a bank in the U.A.E.

As of July 31, 2023 the facility has an interest rate of approximately 8.5% and is set to expire in May 2024.

The Company has a credit agreement for capital expenditure financing with a bank in the U.A.E.

for 2.0 million U.A.E.

Dirhams (approximately $0.5 million at July 31, 2023).

As of July 31, 2023 the facility has an interest rate of approximately 8.5% and is expected to expire in October 2023.

In June 2021, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of 100.0 million Egyptian Pounds (approximately $3.2  million at July 31, 2023).

Dirhams (approximately $5.3 million at October 31, 2023) from a bank in the U.A.E.

As of October 31, 2023 the facility has an interest rate of approximately 9.0% and is set to expire in May 2024.

The Company had borrowed an aggregate of $1.3 million and $1.1 million as of October 31, 2023 and January 31, 2023, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets. 

In June 2021, and as renewed or amended subsequently thereafter, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of

100.0 million Egyptian Pounds (approximately

 million at

October 31, 2023).

This credit arrangement is in the form of project financing at rates competitive in Egypt.

The line is secured by certain assets (such as accounts receivable) of the Company's Egyptian subsidiary.

Among other covenants, the credit arrangement established a maximum leverage ratio allowable and restricted the Company's Egyptian subsidiary's ability to undertake any additional debt. As of July 31, 2023 the facility has an interest rate of approximately 8.0%  and expired in June 2022 , however the Company has started the renewal process for this credit arrangement. The Company is in regular communication with the bank throughout the renewal process and the facility has continued without interruption or penalty.

Among other covenants, the credit arrangement established a maximum leverage ratio allowable and restricted the Company's Egyptian subsidiary's ability to undertake any additional debt. As of

October 31, 2023 the facility has an interest rate of approximately

 and expired in June 2022.

This credit arrangement was subsequently renewed in August 2022 with substantially the same terms and conditions, expect for the facility interest rate which increased to 20.8%, and expired in August 2023. 

The Company is in regular communication with the bank throughout the renewal process and the facility has continued without interruption or penalty.

The Company had borrowed an aggregate of $1.6 million and $3.1 million 

as of October 31, 2023 and January 31, 2023, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets. 

In December 2021, the Company entered into a credit arrangement for project financing with a bank in Egypt for 28.2 million Egyptian Pounds.

As this project has progressed and the Company has made collections, the facility has decreased to a current amount of 8.9 million Egyptian Pounds (approximatel y $0.3  mi llion at July 31, 2023).

As this project has progressed and the Company has made collections, the facility has decreased to a current amount of 

8.9 million Egyptian Pounds (approximatel

 mi llion at

October 31, 2023).

This credit arrangement is in the form of project financing at rates competitive in Egypt.

The line is secured by the contract for a project being financed by the Company's Egyptian subsidia ry.

The line is secured by the contract for a project being financed by the Company's Egyptian subsidiary.

The facility has an interest rate of approximately 20.8%

20.8% and, as of November 2022, is no longer available for borrowings by the Company.

The facility will expire in connection with final customer balance collections and the completion of the project. 

In August 2022, the Company's Egyptian subsidiary entered into a credit arrangement with a bank in Egypt for a revolving line of 100.0 million Egyptian Pounds (approximately $3.2 

million at July 31, 2023).

This credit arrangement is in the form of project financing at rates competitive in Egypt.

The line is secured by certain assets (such as accounts receivable) of the Company's Egyptian subsidiary.

Among other covenants, the credit arrangement established a maximum leverage ratio allowable, to be tested annually at fiscal year-end. As of July 31, 2023 the facility has an interest rate of approximately 20.8%  and is set to expire in August 2023 .

In March 2022, the Company's Saudi Arabian subsidiary entered into a credit arrangement with a bank in Saudi Arabia for a revolving line of 37.0 million Saudi Riyal (approximately $9.9 million at July 31, 2023) This credit arrangement is in the form of project financing at rates competitive in Saudi Arabia.

 and, as of  November 2022, is no longer available for borrowings by the Company.

The facility will expire in connection with final customer balance collections and the completion of the project.

The Company had approximately $

0.3 million outstanding 

as of October 31, 2023 and January 31, 2023, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets.

In March 2022, the Company's Saudi Arabian subsidiary entered into a credit arrangement with a bank in Saudi Arabia for a revolving line of 37.0 million Saudi Riyals (approximately $9.9 million at October 31, 2023).

This credit arrangement is in the form of project financing at rates competitive in Saudi Arabia.

The line is secured by certain assets (such as accounts receivable) of the Company's Saudi Arabian subsidiary.

The facility was renewed in May 2023, and the line was increased to 37.0 million Saudi Riyal (approximately $9.9 million at July 31, 2023).

As of July 31, 2023 the facility has an interest rate of approximately 9.3% and is set to expire in May 2024.

The facility was renewed in May 2023, and the line was increased to 37.0 million Saudi Riyal (approximately $9.9 million at October 31, 2023).

As of October 31, 2023, the facility has an interest rate of approximately 9.5% and is set to expire in May 2024. The Company had borrowed an aggregate of $3.8 million and $1.1 million as of October 31, 2023 and January 31, 2023, respectively, and is presented as a component of current maturities of long-term debt in the Company's consolidated balance sheets. 

These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the Company operates.

3 unchanged sentences

The Company guarantees only a portion of the subsidiaries' debt, including foreign debt.

As of July 31, 2023, the amount of foreign subsidiary debt guaranteed by the Company was approxim ately $0.7 million. 

The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi Arabia as of July 31, 2023, with the exception of those arrangements that have expired and have not yet been renewed. Although certain of the arrangements have expired and the borrowings could be required to be repaid immediately by the banks, the Company is in regular communication with the respective banks throughout the renewal process and all of the arrangements have continued without interruption or penalty.

On July 31, 2023, interest rates were based on (i) the Emirates Inter Bank Offered Rate plus 3.0% to 3.5% per annum for the U.A.E.

As of October 31, 2023, the amount of foreign subsidiary debt guaranteed by the Company was approxim ately $0.1 million. 

The Company was in compliance with the covenants under the credit arrangements in the U.A.E., Egypt and Saudi Arabia as of October 31, 2023, with the exception of those arrangements that have expired and have not yet been renewed. Although certain of the arrangements have expired and the borrowings could be required to be repaid immediately by the banks, the Company is in regular communication with the respective banks throughout the renewal process and all of the arrangements have continued without interruption or penalty.

On October 31, 2023, interest rates were based on (i) the Emirates Inter Bank Offered Rate plus 3.0% to 3.5% per annum for the U.A.E.

credit arrangements, two of which have a minimum interest rate of 4.5% per annum;

(ii) either the Central Bank of Egypt corporate loan rate plus 3.5% per annum or the stated interest rate in the agreements for the Egypt credit arrangements; and (iii) the Saudi Inter Bank Offered Rate plus 3.5% for the Saudi Arabia credit arrangement.

Based on these base rates, as of July 31, 2023, the Company's interest rates ranged from 8.0% to 20.8%, with a weighted average rate of 12.3%, and the Company had facility limits totaling $24.4  million under these credit arrangements.

As of July 31, 2023 , 

Based on these base rates, as of October 31, 2023, the Company's interest rates ranged from 8.0% to 20.8%, with a weighted average rate of 12.1%, and the Company had facility limits totaling $27.2  million under these credit arrangements.

As of October 31, 2023 , 

$6.7  million o f availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees.

Additionally, as of July 31, 2023 , the Company had borrow ed $8.1  million  and had an additional $13.7  million of borrowing remaining available under the foreign revolving credit arrangements.

The foreign revolving lines balances as of July 31, 2023 and January 31, 2023, were included as current maturities of long-term debt in the Company's consolidated balance sheets. 

Additionally, as of October 31, 2023 , the Company had borrow ed $9.5  million  and had an additional $13.7  million of borrowing remaining available under the foreign revolving credit arrangements.

The foreign revolving lines balances as of October 31, 2023 and January 31, 2023, were included as current maturities of long-term debt in the Company's consolidated balance sheets. 

Finance obligation - buildings and land.

8 unchanged sentences

The Company utilized an incremental borrowing rate of 8.0% to determine the finance obligation to record for the amounts received and will continue to depreciate the assets. The current portion of the finance obligation of $ 0.1  million is recognized in current maturities of long-term debt and the long-term portion of $ 9.1  million is recognized in long-term finance obligation on the Company's consolidated balance sheets as of 

July 31, 2023 . The net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term.

October 31, 2023 . The net carrying amount of the financial liability and remaining assets will be zero at the end of the lease term.

Accounts receivable: 

1 unchanged sentence

The system has not yet been commissioned by the customer.

Nevertheless, the Company has settled appro ximately $ 39.1  million as of July 31, 2023 , with a remaining balance due in the amount of $2.8  million , all of w hich pertains to retention clauses within the agreements with the Company's customer, and which become payable by the customer when this project is fully tested and commissioned.

Nevertheless, the Company has settled appro ximately $39.5  million as of October 31, 2023 , with a remaining balance due in the amount of $2.4  million , all of w hich pertains to retention clauses within the agreements with the Company's customer, and which become payable by the customer when this project is fully tested and commissioned.

Of this retention amount, $1.6  million is classified in a long-term receivable account.

Regardless of the contractual due date for payment, the Company has been actively engaged in ongoing efforts to collect the outstanding amount.

The Company continues to engage with the customer to ensure full payment of open balances, and during June 2022, a partial payment was received to settle $0.9 million of the customer's outstanding balances.

Further, the Company has been engaged by the customer to perform additional work in 2022 and 2023 under customary trade terms that supports the continued cooperation between the Company and the customer.

As a result, the Company did not reserve any allowance against the remaining outstanding balances as of July 31, 2023.

The Company continues to engage with the customer to ensure full payment of open balances.

In September 2023 and June 2022, a partial payment was received to settle $0.4 million and $0.9 million of the customer's outstanding balances, respectively.

Further, the Company has been engaged by the customer to perform additional work in 2023 and 2022 under customary trade terms that supports the continued cooperation between the Company and the customer.

As a result, the Company did not reserve any allowance against the remaining outstanding balances as of October 31, 2023.

However, if the Company’s efforts to collect on this account are not successful, the Company may recognize an allowance for all, or substantially all, of any such uncollected amounts.

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis